Burns v. McClinton

• Decision Date: 25 September 2006
• Docket Number: No. 55824-2-I.,55824-2-I.
• Citation: 143 P.3d 630,135 Wn. App. 285
• Court: Washington Court of Appeals
• Parties: Dennis BURNS, individually and in his Capacity as a partner in DB & D Partnership, a Washington Partnership and D & D Properties, A Washington Partnership, Appellants/ Cross-Respondents, v. David B. McCLINTON and Jan B. McClinton, husband and wife, and the marital community comprised thereof, and McClinton & Associates, Inc. a Washington Corporation, Respondents/Cross-Appellants.

143 P.3d 630

135 Wn. App. 285

Dennis BURNS, individually and in his Capacity as a partner in DB & D Partnership, a Washington Partnership and D & D Properties, A Washington Partnership, Appellants/ Cross-Respondents, v. David B. McCLINTON and Jan B. McClinton, husband and wife, and the marital community comprised thereof, and McClinton & Associates, Inc. a Washington Corporation, Respondents/Cross-Appellants.

No. 55824-2-I.

Court of Appeals of Washington, Division 1.

September 25, 2006.

Jerry H. Kindinger, Robin Alison Schachter, Robert Richard King, Ryan Swanson & Cleveland PLLC, Seattle, WA, for Appellants/Cross-Respondents.

Robert B. Gould, Brian J. Waid, Law Office of Robert B. Gould, Seattle, WA, for Respondents/Cross-Appellants.

BECKER, J.

¶ 1 For many years Dennis Burns, a wealthy inventor and investor, used the professional accounting services of David McClinton. Burns gave McClinton carte blanche over his personal finances in 1995. They orally agreed to an indefinite retainer agreement pegging McClinton's monthly fee at $1,500. Burns fired McClinton in 2001 after discovering that McClinton had long been paying himself at the rate of $2,500 per month, as well as additional sums for special projects. Burns sued McClinton, and the trial court found that Burns had not agreed to the fee increase. The court awarded him damages covering six years of breach.

¶ 2 The primary issue is whether the trial court erred in tolling the three-year statute of limitations for an action upon an oral contract. The trial court's ruling was based upon an extension of the "continuous representation" rule that may toll the statute of limitations in an action alleging professional wrongdoing in a particular matter. Holding that the "continuous representation" rule does not apply to a fee dispute arising out of an ongoing professional relationship, we reverse this ruling. We also reverse the conclusion that McClinton's transfer of the unauthorized fees to himself was a violation of the Consumer Protection Act. There is insufficient evidence that McClinton's conduct had the capacity to deceive a substantial portion of the public.

FEE OVERCHARGES

¶ 3 According to unchallenged findings of fact entered after a seven-day bench trial, Burns first hired McClinton, a Certified Public Accountant, in 1985. McClinton did tax work for corporations owned by Burns. He was the only accountant Burns had ever hired. In 1995, when Burns sold portions of his companies, he hired McClinton to handle his personal finances. Burns orally agreed to pay McClinton $1,500 per month.

¶ 4 As the accounting workload for the Burns interests increased, McClinton developed a complex series of accounts that he and Burns could both control. Burns authorized McClinton to pay himself for his accounting work by writing checks on some of Burns's accounts. McClinton began to pay himself extra for what he called "special projects", outside the realm of routine bookkeeping matters. He did not make Burns aware of this practice, and the court found there was no meeting of the minds with respect to these extra charges.

¶ 5 Burns and McClinton met and spoke frequently and often discussed aspects of Burns' financial circumstances. McClinton provided a "barrage" of information to Burns in the form of various financial reports that were hundreds of pages long. McClinton, however, knew that Burns was a "big picture guy" who preferred to delegate the financial details of his operations, wanted only generalized financial information, and would not closely review detailed financial reports. Burns trusted McClinton, as his longtime accountant and friend, to act in his best interest and according to his instructions.

¶ 6 In October 1996 McClinton began to pay himself $2,500 per month, an increase of $1,000 per month above what they had originally agreed to. McClinton testified at trial that Burns met with him in 1996 and orally agreed to the increase. Burns denied this, and the trial court found that the meeting and the agreement to increase the monthly fee "did not occur".

¶ 7 In May 2001, Burns asked McClinton to compile a summary of his accounting fees. The summary McClinton provided revealed the increase in the monthly fee McClinton had been paying to himself, and led to a very brief and uncomfortable conversation between the two men. Eventually, Burns fired McClinton and hired an accounting firm to engage in a forensic accounting and to handle his finances. The firm's audit showed that McClinton's overcharges totaled $87,107 since October 1996.

¶ 8 Burns sued McClinton in March 2003 for the overages as well as several other claims. He alleged that McClinton's excess billing constituted breach of contract, breach of fiduciary duty, and accounting malpractice. McClinton invoked the three-year statute of limitations as a defense. The trial court concluded that the claims for overcharges occurring before March 2000 were not time-barred. The court awarded Burns damages for McClinton's breach of the oral contract in the full amount claimed over the six year period, $87,107. McClinton appeals.

STATUTE OF LIMITATIONS

¶ 9 McClinton contends that the proper application of the three-year statute of limitations calls for the judgment against him to be reduced to $15,000, the total for overcharges occurring during the three years before Burns filed the complaint.

¶ 10 The three-year statute of limitations applies to an action upon a contract which is not in writing. RCW 4.16.080(3). Actions can only be commenced within the time periods specified in Chapter 4.16 RCW "after the cause of action has accrued." RCW 4.16.005. A cause of action accrues when the plaintiff has a right to seek relief in the courts. Janicki Logging v. Schwabe, Williamson, & Wyatt, P.C., 109 Wash.App. 655, 659, 37 P.3d 309 (2001). The purpose of statutes of limitations is to shield defendants and the judicial system from stale claims. When plaintiffs sleep on their rights, evidence may be lost and memories may fade. Crisman v. Crisman, 85 Wash.App. 15, 19, 931 P.2d 163 (1997).

¶ 11 Below, Burns argued that the statute of limitations was tolled in two distinct ways — by the discovery rule and by the continuous representation rule. Under the discovery rule, the statute of limitations does not start to run on an attorney malpractice claim until the client discovers, or in the exercise of reasonable diligence should have discovered the facts giving rise to the cause of action. Janicki, 109 Wash.App. at 658, 37 P.3d 309. Under the continuous representation rule, "the statute of limitations on an attorney malpractice claim is tolled during an attorney's continuous representation of the client in the same matter from which the malpractice claim arose." Janicki, 109 Wash.App. at 658, 37 P.3d 309.

¶ 12 The trial court did not apply the discovery rule. The court did, however, conclude that the continuous representation rule tolled the three year statute on a claim for breach of an oral contract, RCW 4.16.080. The court ruled, "the continuous representation rule applies in that the work performed was part of an ongoing engagement to provide certain accounting services for a fee."

¶ 13 McClinton contends the continuous representation rule does not toll the statute of limitations on the breach of contract claims because there was no claim of error in a specific accounting assignment that required further accounting work to be completed before the claim accrued.

¶ 14 The continuous representation rule was first adopted in this state by Janicki in the context of an attorney malpractice lawsuit. Other jurisdictions have applied the continuous representation rule to toll the statute of limitations on claims of accounting malpractice as well. See, e.g., Ackerman v. Price Waterhouse, 252 A.D.2d 179, 683 N.Y.S.2d 179, 197 (N.Y.App.Div.1998) ("It is beyond dispute that the doctrine applies to actions against accountants"); Zaref v. Berk & Michaels, P.C., 192 A.D.2d 346, 595 N.Y.S.2d 772 (N.Y.App.Div.1993).

¶ 15 The evolution of the continuous representation rule in attorney malpractice cases is discussed in Ronald E. Mallen & Jeffrey M. Smith, 2 Legal Malpractice § 22.13 at 370-373 (2006). New York courts initially identified the doctrine as continuous "treatment," recognizing its medical malpractice origins. According to Mallen and Smith, "continuous representation" is the more appropriate and more recent reference, and the representation must be with regard to a particular matter:

The premise is that the "cause of action in an attorney malpractice case should not accrue until the attorney's representation concerning a particular transaction is terminated." The application of the rule to specific facts should be based on whether any of the policy considerations is furthered.

The purpose of the continuous representation rule is to avoid disrupting the attorney-client relationship unnecessarily. Adoption of the rule was a direct reaction to the illogical requirement of the occurrence rule, which compels clients to sue their attorneys though the relationship continues, and there has not been and may never be any injury. The continuous representation rule is consistent with the purpose of the statute of limitations, which is to prevent stale claims and enable the defendant to preserve evidence. When the attorney continues to represent the client in the subject matter in which the error has occurred, all such objectives are achieved and preserved. The attorney-client relationship is maintained and speculative malpractice litigation is avoided.

Mallen and Smith, at 372 (emphasis added, citations omitted).

¶ 16 "The doctrine is not limited to litigation, nor does it matter whether the theory of liability sounds in tort or contract." Mallen and Smith, at 373. Here, the trial court concluded McClinton's undisclosed fee increases not only breached the oral agreement he made with Burns, but were also tortious:

Mr....